Gaurav Shah, head of asset management and CEO-designate at Al-Rajhi Capital said the asset management space in the Kingdom has been hit hard in the last couple of years after growing at a rate of 25 percent to 30 percent between 2005 to 2008.

Al-Rajhi Capital is the investment banking arm of Al-Rajhi Bank, the Kingdom's biggest lender by market value.

The industry has also been crippled by high concentration within capital markets and a lack of viable alternative investment options, said Shah whose firm manages about SR13 billion ($3.5 billion) in the region.

"You have the top ten companies accounting for 60 to 65 percent of the market capitalization," Shah said.

"As a result a lot of investors prefer to invest directly in these companies instead of going through a managed investment platform supported by fundamental research from the asset management industry."

Investors are also limited by the range of alternatives available to play the market. Only options available currently are equity investments, direct real estate and low-yielding money market instruments.

This means investors in the region have fewer options than in more developed and even some emerging markets with flourishing fixed-income markets.

"Investment options for the retail market are still relatively limited," Shah said.

Yet, Saudi Arabia is the largest market in the region and global banks and fund mangers have set up shop in the kingdom looking at ways to tap opportunities on the Gulf's largest and best performing market in 2009.

The world's top oil exporter has been trying to encourage more foreign money to its bourse, having allowed indirect foreign ownership via so-called swap agreements in 2008 as part of gradual efforts to open up the region.

The bourse has so far returned about 3 percent to investors this year.

"The asset management industry in Saudi Arabia is relatively young," Shah said.

The sector will benefit from the development of an insurance sector in the region, Shah said, adding that globally insurance firms act as the backbone of the asset management industry helping create demand for their products and services.

"If you see over the past 12 to 18 months, the insurance sector has begun investing through the asset management industry," Shah said.

Investors are also demanding more diverse product classes such as multi-asset class products, total return products, liquid and transparent products like exchange-traded funds (ETFs) in the region, Shah said.

Saudi Arabia launched ETFs earlier this year, accessible to foreign investors as part of efforts by the kingdom to open up the biggest Arab bourse.

Al-Rajhi recently launched a Luxembourg-domiciled fund to invest in Saudi equities aiming to tap demand for off-shore funds, Shah said.